Be Wary of Private Tax Collectors
By Morgan D. King,
Morgan King Company & Morgan King Law Offices
Dublin, California
a section of the tax code, Fair Tax
Collection Practices (FTCP) 4 .
The IRS will give taxpayers and their
representative written notice that
the accounts are being transferred
to the private collection agencies.
The agencies will send a second,
separate letter to the taxpayer and their
representative confirming this transfer.
T
he United States Tax Code
authorizes the IRS to enter
into a “qualified tax collection
contract.” 1 This means private debt
collectors. The only activities the IRC
authorizes private debt collectors
to perform in connection with tax
collecting are, locating and contacting
taxpayers, requesting full payment or
offering installment agreements lasting
up to 5 years, and obtaining financial
information about the taxpayer.
A New York Times article about private
tax collection said:
“The I.R.S. is owed about $138 billion,
a sum that lawmakers are eager to
reduce. To supplement the agency’s
collection efforts, Congress ordered
it to hire outside firms – an approach
that was tried twice before, in 1996 and
2006, and then abandoned because
of cost overruns and concerns about
abuses.”
Consequently, the IRS has authorized
4 private debt collectors to collect
overdue taxes. 2
As part of this
arrangement, private collectors are
subject to the Fair Debt Collection
Practices Act (“FDCPA”) 3 , as well as
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CONSUMER BANKRUPTCY JOURNAL
The provisions of both statutes
prescribe a range of collection activities
that are forbidden, including obvious
ones like abusively frequent phone
calls, profanity, threats of violence,
obscene language, and the like. And,
they both provide for damages if
violation is proven. 5
Only a handful of taxpayers who
consult a bankruptcy attorney will report
violations of abusive tax collection.
Nevertheless, this suggests several
things attorneys should be aware of.
1.
Both statutes provide that tax
collectors cannot communicate directly
with the taxpayer once they become
informed the debtor is represented by
counsel.
2.
The FDCPA provides that the
collector must cease communicating
directly with the taxpayer/debtor if
requested In writing.
3. The restrictions include, where
the debtor would rather not deal with
the private tax collector, upon written
request the private collector must turn
it back over to the IRS.
4. Pre-petition violations of either
statute may be an opportunity to file a
lawsuit on behalf of the debtor.
Spring 2018
But for those who have been, there may
be an opportunity to sue the private tax
collector for damages. 6
Other potential violations.
a. The private collector may represent
that the taxpayer can have up to 7
years to pay the liability; false, payment
plans may not go beyond 5 years.
b. Urging the taxpayer to run up
more debt in order to pay the taxes,
or deplete important assets, such as
drawing down a 401(k) fund, borrowing
against home equity, and using credit
cards to pay it. A letter from Elizabeth
Warren to the New York Times scolded
the private collectors from trying to
pressure the taxpayer into paying by
those means.
There is at least one important
difference between the two statutes;
lawsuits based on violation of the
FDCPA do not require exhaustion of
administrative remedies, while suits
based on the FTCP do. 7
Who do you sue if the private tax
collector violates the restrictions on
abusive collection practices? The law
insulates the IRS from liability for any
misconduct by the private collector,
permitting suit to be brought against the
private tax collector only, not against
the United States. 8
Should we expect private tax collectors
to violate either the FDCPA or the
FTCP?
You think?
The IRS has taken some steps to rein
in aggressive private tax collection,
such as requiring them to submit
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